Note the coinlike disc attached to the tstat in this photo, that is what blocks off the coolant bypass at operating temp:
Thermostat 240/260 diesel 85-93 (87°C, 189°F)
Thinking more about that, lack of that blocking disk would worsen an overheat situation more than underheat.
RE: correct orientation, that disc should be facing into the head, with the peaked part of the tstat facing outwards. Then the rubber seal (hope you did install that?) is sandwiched between the tstat and the bolt-on flange, as shown in
this dwg.